Tomra of N. Am., Inc. v. Dep't of Treasury

• Decision Date: 16 June 2020
• Docket Number: Calendar No. 3, Docket No. 158335,Docket No. 158333
• Citation: 952 N.W.2d 384,505 Mich. 333
• Parties: TOMRA OF NORTH AMERICA, INC., Plaintiff-Appellee, v. DEPARTMENT OF TREASURY, Defendant-Appellant.
• Court: Michigan Supreme Court

505 Mich. 333

952 N.W.2d 384

TOMRA OF NORTH AMERICA, INC., Plaintiff-Appellee,

v.DEPARTMENT OF TREASURY, Defendant-Appellant.

Docket No. 158333

Docket No. 158335

Calendar No. 3

Supreme Court of Michigan.

Argued November 7, 2019

Decided June 16, 2020

Honigman LLP (by June Summers Haas and Daniel L. Stanley ) for plaintiff.

Dana Nessel, Attorney General, Fadwa A. Hammoud, Solicitor General, and Scott L. Damich and Randi M. Merchant, Assistant Attorneys General, for defendant.

Miller, Canfield, Paddock and Stone, PLC (by Clifford W. Taylor, Paul D. Hudson, and Michael C. Simoni ) for the Michigan Manufacturers Association, Amici Curiae

Fraser Trebilcock Davis & Dunlap, PC (by Paul V. McCord) for the Michigan Retailers Association, Amicus Curiae

The Mike Cox Law Firm (by Jackie J. Cook ) for the Taxation Section of the State Bar of Michigan, Amicus Curiae

BEFORE THE ENTIRE BENCH

Viviano, J.

At issue is whether plaintiff TOMRA of North America, Inc.’s container-recycling machines and repair parts are excluded as a matter of law from qualifying for the industrial-processing-activity exemptions under MCL 205.54t of the General Sales Tax Act (GSTA), MCL 205.51 et seq. , and MCL 205.94o of the Use Tax Act (UTA), MCL 205.91 et seq. Specifically, we must determine whether the temporal limitation specified in the general statutory definition of "industrial processing," MCL 205.54t(7)(a) ; MCL 205.94o(7)(a), applies to the enumerated list of "industrial processing" activities in MCL 205.54t(3) and MCL 205.94o(3), respectively. To answer this question, we first clarify that because the statutes are unambiguous, the interpretive principle that tax exemptions are strictly construed is inapplicable to this case. Under the proper interpretive standards, we hold that the temporal limitation in MCL 205.54t(7)(a) and MCL 205.94o(7)(a) does not apply to the activities listed in MCL 205.54t(3) and MCL 205.94o(3), respectively.

I. FACTS AND PROCEDURAL HISTORY

TOMRA sells and leases reverse-vending machines, the bottle- and can-recycling machines commonly found in grocery stores used to help retailers comply with Michigan's bottle-deposit law, MCL 445.571 et seq. The company also sells repair parts for the machines. The machines sort the bottles and cans, which are then placed in bins and brought to a recycling facility. The facility then sells the bottles and cans to manufacturers who use the materials in other products.

TOMRA claimed that its machines were exempt from both the GSTA and the UTA under each act's industrial-processing exemption.¹ After an audit by defendant, the Department of Treasury, TOMRA sought a determination from the Court of Claims that its machines fall within the industrial-processing exemptions. In granting summary disposition to the department, the Court of Claims found that the tasks that TOMRA's machines perform occur before the industrial process begins; therefore, TOMRA could not avail itself of the industrial-processing exemptions. The Court of Claims reasoned that the activities listed in MCL 205.54t(3) (establishing that industrial processing includes 11 enumerated activities) and MCL 205.94o(3) (same) are only industrial-processing activities when they occur between the start and end of the industrial process as defined by MCL 205.54t(7)(a) and MCL 205.94o(7)(a), respectively.

The Court of Appeals, in a split, published decision, reversed the Court of Claims, declining to interpret MCL 205.54t(7)(a) and MCL 205.94o(7)(a) as placing a temporal requirement on the activities listed in MCL 205.54t(3) and MCL 205.94o(3), respectively.² The Court explained, "The statute does not state that industrial processing must begin this way but rather states that when tangible personal property begins movement from raw-materials storage to begin industrial processing, one can rest assured that industrial processing has begun."³ The Court held that MCL 205.54t and MCL 205.94o do not preclude industrial processing from "occur[ring] without the initial step of moving raw materials from storage, or when tangible items are never in raw-materials storage," and reversed and remanded.⁴ Judge K. F. KELLY dissented, arguing that the temporal limitation applied to the activities listed in MCL 205.54t(3) and MCL 205.94o(3).⁵

II. STANDARD OF REVIEW

"We review de novo a trial court's determination regarding a motion for summary disposition. Summary disposition is appropriate if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law."⁶

III. ANALYSIS

A. INTERPRETIVE STANDARDS

Before addressing the question presented in this case, we first take this opportunity to clarify the interpretive standards applicable to statutory tax exemptions. In every case requiring statutory interpretation, we seek to discern the ordinary meaning of the language in the context of the statute as a whole.⁷ But with regard to tax exemptions, the oft-repeated rule is that they must be strictly construed in favor of the government, i.e., against the finding of an exemption.⁸ Stated more fully, this canon of construction provides that " ‘[a]n intention on the part of the legislature to grant an exemption from the taxing power of the State will never be implied from language which will admit of any other reasonable construction. Such an intention must be expressed in clear and unmistakable terms, or must appear by necessary implication from the language used ....’ "⁹ The Court of Appeals below referred to this commonly recited principle, and the department invokes it in this Court.¹⁰ We therefore must determine, at the outset, the canon's proper function.

The preference against tax exemptions is a judicially created substantive canon, meaning that it is premised on certain policies or political objectives instead of its usefulness in uncovering a statute's ordinary meaning.¹¹ In other words, it loads the dice in favor of one interpretation, not because that interpretation is more likely to be semantically correct but because it better serves policy objectives. The justification for the canon has long been tied to political theory. When it first appeared in our caselaw in 1854, the Court explained that tax exemptions were "construed strictly" because they were "in derogation of equal rights."¹² "Equal rights" referred to the Jacksonian-era political doctrine—which found its way into the law in various capacities—that legislation favoring one class or group should be limited, if allowed at all.¹³ This rationale, in the context of taxes, has continued to buttress the canon in our cases.¹⁴ The canon does not, then, shed any light on whether the ordinary language of a statute enacted by the Legislature provides a tax exemption. Perhaps for this reason, our caselaw—especially in recent opinions—has also stressed that the canon cannot overcome the plain text, and in a few cases, we have not relied on or mentioned it at all.¹⁵

We take this opportunity to clarify that because the canon requiring strict construction of tax exemptions does not help reveal the semantic content of a statute, it is a canon of last resort. That is, courts should employ it only "when an act's language, after analysis and subjection to the ordinary rules of interpretation, presents ambiguity."¹⁶ In the present case, the canon is inapplicable because, as we explain below, the statutes are unambiguous: their ordinary meaning is discernible by reading the text in its immediate context and with the aid of appropriate canons of interpretation.¹⁷

B. THE EXEMPTION

The GSTA imposes taxes on the sale of goods, and the UTA imposes taxes on goods purchased outside the state for use in the state.¹⁸ To avoid the double taxation of a product that would result from exacting both use and sales taxes, the Legislature exempted certain property used or consumed in industrial processing from the taxes in each act.¹⁹ The exemption covers, among other things, "tangible personal property [that] is intended for ultimate use in and is used in industrial processing by an industrial processor" or "is used by [a] person [whether or not an industrial processor] to perform an industrial processing activity for or on behalf of an industrial processor."²⁰

The GSTA's industrial-processing exemption—which is, for present purposes, identical to the UTA's exemption and will be quoted in the text going forward—provides both a general definition of industrial processing, MCL 205.54t(7)(a), and also a list of specific activities that constitute industrial-processing activities, MCL 205.54t(3).²¹ The general definition in Subsection (7)(a) states:

"Industrial processing" means the activity of converting or conditioning tangible personal property by changing the form, composition, quality, combination, or character of the property for ultimate sale at retail or for use in the manufacturing of a product to be ultimately sold at retail. Industrial processing begins when tangible personal property begins movement from raw materials storage to begin industrial processing and ends when finished goods first come to rest in finished goods inventory storage.^{[22 ]}

The definition's second sentence establishes a temporal period during which industrial processing must occur, spanning from when the property begins movement from raw-materials storage into processing until the finished goods enter inventory storage. Subsection (3) states:

Industrial processing includes the following activities:

(a) Production or assembly.

(b) Research or experimental activities.

(c) Engineering related to industrial processing.

(d) Inspection, quality control, or testing to determine whether particular units of materials or products or processes conform to specified parameters at any time before materials or products first come to rest in finished goods inventory storage.

(e) Planning, scheduling, supervision, or control of production or other exempt activities.

(f) Design, construction, or maintenance of

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